Lack of diversification is largely not an issue for SMSFs, which are investing in assets they understand and can easily trade, according to the SMSF Association.
“Australian Taxation Office (ATO) figures show that although there might be a bias towards Australian investments, a lack of diversification across asset classes is typically not an issue,” said Peter Hogan, Head of Technical at the SMSF Association.
“When critics of SMSF trustees’ asset allocation point to a lack of diversification, they often highlight the absence or low allocation to assets such as international equities, forgetting SMSFs are still getting exposure to these assets via ETF’s, listed and unlisted trusts and managed funds,” he said.
Mr Hogan said the returns generated by SMSFs speaks volumes for the capacity of trustees to manage their portfolios.
“Based on ATO statistics, for example, for the eight years from the 2007 financial year to the 2014 year, SMSF returns outperformed all other alternative superannuation arrangements for four of those years,” he said.
“Although in recent times, the predominant asset allocation of SMSF trustees has not performed as well compared to alternative funds, it is still within reach. APRA statistics for the 2015 financial year, for example, show the return for SMSFs after expenses (excluding contributions) to be 5.7%. This compares with non-SMSF returns of 8.5% for the same period.”
“These returns do not support the suggestion that SMSF trustees are dangerously out of their depth or incompetent in investing their members’ superannuation balances. It also has to be noted that many SMSFs are in pension phase and therefore have more defensive investment portfolios to suit their needs.”
Hogan also rejected suggestions that SMSFs are over-investing in bank shares or residential property.
“All the evidence suggests SMSF trustees are prudent, investing in asset classes where they have knowledge, or giving the responsibility to a manager where they lack expertise. It’s hardly surprising really – it is their money.”